Ricardo Bueno's Blog

In an earlier post I commented on how the Fed's move to cut the discount rate was seen as a prelude to a cut in the Fed Funds Rate.

Chief Economist Dr. Irwin Kellner shares his insights as to why the Fed needs to cut the discount rate in his article: Why the Fed Needs to Drop the Other Shoe

"The fed funds rate, on the other hand, is the basis for pricing loans ranging from those that the banks make to blue chip firms for short periods of time to those at the opposite extreme - Subprime borrowers financing a home mortgage. It is this rate that needs to be cut if the credit markets are to relax their squeeze.

Remember as I said back on August 7, there is no shortage of credit out there - just a lack of confidence. For reasons you are well aware of by now, lenders have suddenly discovered that with generous returns comes a hefty dollop of risk.

The credit squeeze represents a re-pricing of such risks. Unless and until these risks are reduced, the credit squeeze will continue, thereby threatening not just the housing industry - but the rest of the economy as well."

It's the investors that drive the capital markets, in this case the bond markets that drive interest rates. And frankly they've lost interest in the lesser grade portfolios and many of the other ones as well. In short, the investor has lost all confidence in the borrower's ability to repay! [Let's not point the finger at who or the reasons why. That is not what this post is about]. 

Is a Fed Funds Rate Cut the solution to our problem?

Sure it will boost some confidence into the economy which is to an extent what we need. But here are some additional questions to ponder:

How far reaching will the effects of a rate cut be?

Will a rate cut allow Subprime credit borrowers and other lesser credit borrowers the opportunity to keep their homes? (Isn't this the same problem that got us here?)

Market Watch's Herb Greenberg said it best:

"Rate cut or no rate cut the economy is about to take a hit and nobody knows when or how this will eventually end. Furthermore, liquidity as we have come to know it wasn't really liquidity at all: it was, for a lack of a better description, fake liquidity driven by credit. In fairly short order we'll find out just how much Americans have been living beyond their means thanks, in large part, to the inflated (as in bubble) equity in their homes."

The way I see it, Fannie Mae & Freddie Mac should raise the conforming loan limit. What do you think?

Let's remember, Fannie Mae & Freddie Mac buy mortgages from various lenders which they then repackage and sell as securities. This allows banks to free up their funds and write more loans. By doing this, their injecting liquidity into the mortgage market.

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Related Articles:

Bernanke Suggests New Creative Mortgage Products to Ease Credit Crunch: good or bad?

***Visit my new blog at www.industry-report.com

Los informes económicos de la semana pasada indican una declinación continuada en actividad de la cubierta. Tomemos una mirada:
- el comienzo de cubierta está en el nivel más bajo desde enero de 1997
- el comienzo de cubierta de la Uno-Unidad es en su cuarto mes de una declinación consecutiva
- los permisos de edificio ahora están abajo a los niveles más bajos desde 11 años
- los permisos de la Uno-Unidad están en los niveles más bajos desde 1995

La Tarifa De Fondos Del Fed:
Se parece haber discusión sobre esta edición... Cuando el fed bajó el tipo de descuento aparecía ser un preludio a una disminución de la tarifa de los fondos del fed esta reunión próxima de septiembre del 18. El hecho es, algo necesita ser hecho sobre esta edición del crujido de crédito; o bajamos la tarifa de fondos del fed y esperamos que traduce a tarifas más bajas todo alrededor o, el regulador federal para Fannie Mae y el mac de Freddie deciden a aumentar el límite del préstamo que se conforma algo como $525.000.

Como si la situación no fuera bastante mala, algunos vendedores no califican para su mejora porque los programas del préstamo no pueden acomodar su panorama del financiamiento. El comprador no puede calificar para sus listados demasiado caros... que algo necesita llevar. Aunque era un movimiento brillante del fed cortar el tipo de descuento, ése solucionó solamente un problema...el problema de la liquidez de los bancos.

[CONTINÚE LEYENDO ESTE ARTÍCULO AQUÍ]

Last week's economic reports indicate a continued decline in housing activity. Let's take a look:
- Housing Starts are at the lowest level since January 1997
- One-Unit Housing Starts are on their fourth month of a consecutive decline
- Building permits are down to the lowest levels since 11 years now
- One-Unit permits are at the lowest levels since 1995

The Fed Funds Rate:
There seems to be debate on this issue... When the Fed lowered the Discount Rate it appeared to be a prelude to a decrease in the Fed Funds rate this upcoming September 18th meeting. The fact is, something needs to be done about this credit crunch issue; either we lower the Fed Funds Rate and hope it translates into lower rates all around or, the Federal Regulator for Fannie Mae & Freddie Mac decide to increase the conforming loan limit to something like $525,000.

As if the situation wasn't bad enough, some sellers don't qualify for their upgrade because loan programs can't accommodate their financing scenario. Buyer's can't qualify for their over-priced listings...something needs to give way. Although it was a brilliant move by the Fed to cut the Discount Rate, that only solved one problem...The Banks Liquidity Problem.

[READ ON]

It's somehow engraved within human nature to simply get through the day rather than getting FROM the day and that's the fundamental flaw on our road to success. We take steps daily to just get by. When instead what you need is to step back, assess your system, and make changes. It's as I said in an earlier post,

We're in a changing market sure, but Top Producers have the ability to re-invent themselves in the midst of change; and yes even in the midst of drastic change.

Carol Woodliff is a speaker and coach and Co-Owner of the WMW Group, a Coaching Firm with offices in San Marino and Santa Clarita that brings professional development seminars to organizations throughout Southern California. In a recent article, Taking Five she states:

"The assignments are normally simple and doable; an example, “Listen to this 5 to 10 minute reinforcement of your session.” Yet even taking 5 to 10 minutes a day doesn’t happen.  I'm not finding fault my clients.  I think this is something interesting about human nature.

It seems obvious, when we want to make a change; we have to do something differently. But what does it say about our respect for ourselves when we can’t even find 5 minutes a day toward our new habit? I think, for most of us, it is that we aren’t really conscious.  We want to change but most days we move through life on automatic pilot..." [Read More]

[READ ON] 

*You can also comment on this blog and read the full article at www.industry-report.com (my new weblog)

Let me start off by saying that despite the fact that this may have been some one from the marketing department and not Timothy Wennes himself, the comment was made and it's there and it's good spin :)

Now, the story...

Recap: 

On Monday I wrote a headline piece stating the latest news on the Countrywide scandal; the rumor that Warren Buffett & Berkshire Hathaway are contemplating buying part of the large Countrywide. 

I received the following comment in response to my blog post from Countrywide's Chief Operating Officer...

*Visit my new blog at www.industry-report.com I look forward to reading your comments there.

What do you make of it? Media fluff to cover up problems or a genuine statement? 

Eye Level Pasadena is a local Pasadena blog written by Jill Davis Doughtie, a local Pasadena resident.

Now for those you interested in the local Pasadena Real Estate market and relocating to Pasadena, but you're really attached to your home, you gotta see what this home owner is doing...

According to former Federal Reserve Chairman Alan Greenspan:

"Households own $20 trillion in Real Estate assets. Almost twice the amount they own in mutual funds and directly hold in stocks."

Do you think these households could use our help? [The way I see it, with people leaving the industry on a daily basis, that's more market share for me to grab!]

It's estimated that in December 2008, $800 Billion subprime ARMs will adjust and 68% of these loans will default! [Statistical source unknown; but I'll find it]

These borrowers/home owners are in desperate need of our help. They want to know...

[READ ON] 

Amidst this credit crunch, I asked a client of mine what they thought about Countrywide and all the hype of a possible bankruptcy.

His response:

"I don't think they'll go under, or rather I hope that they don't. They're the nation's #1 lender and as such we need someone like them to give us confidence in getting through this whole mess. They're like a small light at the end of the tunnel; it's faint, but it's there.

So at the end of the day I think someone will be there to bail them out. They have to."

It's interesting that he comments "someone will be there to bail them out." Why? Well...

Let's look at the latest article by Reuters:

"Buffett told TV network CNBC last week that the worsening credit and housing markets may present some 'real' investment opportunities."

Well, did you know that Buffett has interest in financial services companies? Particularly those with exposure in the mortgage industry.

Just take a look at his investment company, Berkshire Hathaway. It has an investment in...

[READ ON] 

In an article from Market Watch:

"The company said it will immediately stop originating mortgages through its GreenPoint Mortgage business, which offers loans through brokers.

The company also said it will close GreenPoint's California-based Headquarters along with 31 locations across 19 states. That will mean the elimination of roughly 1,900 jobs, most by the end of 2007."

Greenpoint specialized in originating mostly non-conforming loan amounts (conforming loan amounts are the lending limits and standards as set by Fannie Mae and Freddie Mac; both government-sponsored providers of mortgage funds). Because they serviced mainly jumbo loans to Alt-A borrowers and borrowers on Stated Income and Stated Assets, as Capital One Chairman and Chief Executive Mr. Richard D. Fairbank put it,

"The unit couldn't weather the challenges currently facing the mortgage industry."

So who WILL weather out the storm? 

[READ ON] 

Read my latest update on the Countrywide Crisis & Warren Buffet: how the two are related.